Suppose the Credit Terms Offered to Your Firm by Its

question 63

Multiple Choice

Suppose the credit terms offered to your firm by its suppliers are 2/10,net 30 days.Your firm is not taking discounts,but is paying after 25 days instead of waiting until Day 30.You point out that the nominal cost of not taking the discount and paying on Day 30 is approximately 37%.But since your firm is neither taking discounts nor paying on the due date,what is the effective annual percentage cost (not the nominal cost) of its costly trade credit,using a 365-day year?

• A)60.3%
• B)63.5%
• C)66.7%
• D)70.0%
• E)73.5%

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Definitions:

Progressive

A term often used in the context of taxation or political ideology, indicating policies or stances that aim to redistribute resources from the more affluent to the less affluent.

Income Tax

Tax levied by a government directly on income, especially an annual tax on personal income.

Work and Leisure

Describes the balance between the time and effort spent in gainful employment and the time spent in recreational activities or rest.

Second Best

Refers to a situation wherein the optimal condition cannot be achieved, and the best possible alternative under the given restrictions is adopted.